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Aap 7

This document discusses several topics related to auditing payroll, inventory valuation, notes payable, and owners' equity transactions. Key points include: 1. When auditing payroll, controls over fictitious employees, wage authorizations, payroll classifications, and transaction completeness should be tested. Tests of details normally require the least time. 2. Inventory valuation can be understated if administrative salaries are charged to overhead or if direct labor costs are improperly allocated. 3. A primary focus in auditing debt is existence, and audit procedures for notes payable and interest income are often simultaneous using average balances and rates.

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21 views2 pages

Aap 7

This document discusses several topics related to auditing payroll, inventory valuation, notes payable, and owners' equity transactions. Key points include: 1. When auditing payroll, controls over fictitious employees, wage authorizations, payroll classifications, and transaction completeness should be tested. Tests of details normally require the least time. 2. Inventory valuation can be understated if administrative salaries are charged to overhead or if direct labor costs are improperly allocated. 3. A primary focus in auditing debt is existence, and audit procedures for notes payable and interest income are often simultaneous using average balances and rates.

Uploaded by

batistillenie
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1.

When labor is a material factor in inventory valuation, the auditor should place special emphasis
on testing the internal controls concerning:
a. fictitious employees.
b. authorization of wage rates.
c. proper classification of payroll transactions.
d. completeness of recorded transactions.

2. In auditing payroll, which of the following procedures will normally require the least amount of
auditor time under normal circumstances?
a. Tests of controls
b. Substantive tests of transactions
c. Analytical procedures
d. Tests of details of balances

3. Which of the following statements is correct?


a. The overhead charged to inventory at the balance sheet date can be understated if the
salaries of administrative personnel are inadvertently or intentionally charged to indirect
manufacturing overhead.
b. When jobs are billed on a cost-plus basis, revenue and total expenses are both affected by
charging labor to incorrect jobs.
c. Payroll is a significant portion of inventory for retail and service industry companies.
d. The valuation of inventory is affected if the direct labor cost of individual employees is
improperly charged to the wrong job or process.

4. Which of the following statements is correct regarding the capital acquisition and payment cycle?
a. Bonds are frequently issued by companies in small amounts.
b. There are relatively few transactions and each transaction is typically highly material.
c. A primary emphasis in auditing debt is on existence.
d. Audit procedures for notes payable and interest income are often performed
simultaneously.

5. The auditor's independent estimate of interest expense from notes payable uses average
interest rates and:
a. average notes payable outstanding.
b. year-end notes payable outstanding.
c. only notes payable above the level of materiality.
d. only notes payable to major lenders.

6. The audit objective to determine that notes payable in the schedule actually exist is verified by
the test of details of balances procedure to:
a. foot the notes payable list.
b. confirm notes payable.
c. recalculate interest expense.
d. examine the balance sheet for proper disclosure of noncurrent portions.

7. When there are not numerous transactions involving notes payable during the year, the normal
starting point for the audit of notes payable is:
a. a schedule of notes payable and accrued interest prepared by the audit team.
b. a schedule of notes payable and accrued interest obtained from the client.
c. a schedule of only those notes with unpaid balances at the end of the year prepared by the
client.
d. the notes payable account in the general ledger.

8. Which of the following would generally not need to be approved by the board of directors?
a. Issuing capital stock
b. Repurchasing capital stock
c. Declaration of a dividend
d. Payment of a dividend

9. When a company maintains its own records of stock transactions and outstanding stock,
internal controls must be adequate to ensure that:
a. actual owners are recorded in the bylaws.
b. the correct amount of dividends is paid to stockholders owning the stock on the dividend
record date.
c. the correct amount of dividends is paid to stockholders owning the stock on the declaration
date.
d. actual owners are recorded in the minutes.

10. Which of the following types of owners' equity transactions would require authorization by the
board of directors?
a. Issuance of capital stock
b. Repurchase of capital stock
c. Declaration of dividends
d. All of the above

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